The assets that an individual owns become their estate after they die. Depending on the value of the estate, there may be estate tax liability to address. Multi-million dollar estates are potentially subject to federal estate taxes. If the total value of an individual’s property is $13.99 million or more, then their estate may need to cover sizable estate tax obligations.
What strategies can facilitate a reduction in estate tax obligations?
Taking on co-owners
An estate generally consists of the assets held solely by the decedent prior to their passing. In many cases, assets that also belong to a co-owner have protection from inclusion in the estate. How an individual holds title to those assets may influence whether their ownership interest becomes part of the estate or passes directly to a co-owner.
Making strategic gifts
Many people try to limit estate taxes by gifting certain assets to friends or family members. Gifts are subject to annual gift tax exclusion amounts, after which taxes may be due. Gifts may also contribute to the overall value of the taxable estate in some cases.
Funding a trust
Businesses, real property and other valuable assets could increase the overall value of the estate to a point where estate taxes are inevitable. Changing the ownership of those high-value resources by transferring them to a trust can diminish the overall value of the estate.
Appropriate strategies can significantly reduce the likelihood of estate taxes or minimize the tax rate that applies. Reviewing an itemized list of personal assets with a skilled legal team can help testators create comprehensive estate plans that effectively address the risk of estate taxes.